[delecti]

It's really weird how this article tries to frame the situation. It's almost like the startups feel entitled to the funding.

The point of funding should really be to enable faster growth than they might otherwise have been able to achieve, but if a business can't at least survive without huge influxes of investments then is it really a business that they should be investing in in the first place?

[mindcrime]

Here's the somewhat ironic "catch 22" to the whole thing:

If you're a startup and you don't take VC funding, then you have the luxury of simply enjoying organic growth and funding expansion by re-investing profits into the company. Well, as long as you can do that in the face of competitive pressure. Strictly speaking, unless it's a "network effect" situation like a social network, you probably don't need to grow fast.

Unless you take VC money. Then, the simple act of taking their money now means there is pressure to grow fast, but it comes from the investors and not from the market per-se. And this is because VC funds are time-boxed and, by definition, have to generate whatever return they're going to generate by a fixed point in time. And the older a fund is (eg, the nearer it is to the end of it's life) the greater the pressure.

This is something I think more entrepreneurs should think long and hard about. Don't raise VC money just for the sake of doing it. Even if you can. Do it IF and only if it's the only (or at least surest) way to reach your goals. And always remember that the VC's interests do not necessarily align with the founders (at least not 100% so).

[freyr]

> unless it's a "network effect" situation like a social network, you probably don't need to grow fast.

Uber seems like a weird example of this. It was said (and remains said) that they're operating in a winner-take-all space, and they expanded as if they were a social network.

Despite the aggressive expansion and marketing, a majority of people I know in the Bay Area now use Lyft exculsively. The last few times I've said "I'll get an Uber," somebody's actually paused and said "Wait, why don't we take Lyft?" I'm not even sure why. When asked, they just reply that they don't like Uber for some non-specific reason.

They're expanding around the world and into new products and concepts, but haven't even seemed to nail down a loyal customer base on their home turf. Anecdotally speaking.

[mindcrime]

I am a perfect example of somebody who was a "loyal Uber user." They were here (Raleigh/Durham/Chapel Hill) before Lyft, and I was already familiar with them and had an account and all from having used the service while I was in San Francisco visiting. And so when my car broke down and I decided to go car-less for a while, I started using Uber all the time (along with walking and bicycle riding).

And then... Uber lowered their rates. Good for me, right? Rides are cheaper now. BUT... it appears that as a result, a LOT of local Uber drivers have quit doing Uber and over the past month, it's become increasingly difficult to even get an Uber here. More and more often, I fire up the app and get "No UberX available" (and usually no UberXL or UberSelect either). So I installed the Lyft app, and I consistently find that Lyft can get me a ride when Uber can't.

I still usually at least try Uber first just out of habit, but they're definitely ceding ground to Lyft in this area, just due to availability if nothing else.

OTOH, Uber does do some neat stuff... like I noticed that in Portland, they have "UberPedal" where you can get a car with a bike rack. I find myself hoping they expand that to our area, as it would be nice to be able to bike to work, knowing that if it's raining or cold or something later, I can call up an UberPedal bike-rack equipped car for the trip home.

[bsbechtel]

This is interesting because much of what has been written about Uber and lowering prices + surge pricing is the idea that Uber is trying to perfectly match supply and demand. If rides are consistently unavailable, that would be an indicator to me that their pricing is too low, and they aren't doing as good of a job as expected with this.

[s_q_b]

Their service here in Washington, D.C. is awful. I used to love Uber, evangelized it to friends, was even the first to show Sanju Bansal how it worked when we were at a gala. Everyone else was fumbling for their S-Class keys while our twin black Navigator vehicles proceeded to pick us up at the entrance.

That, to me, was the Zenith of Uber. The entire VC set of the city was waiting for cars and drivers gridlocked in the garage and lot, while some kid with an app summoned two fully appointed SUVs as if from nowhere.

I wore Uber shades, tried the various promotions. I was thrilled, absolutely certain that they were one partnership away from Google to automate city transport and leapfrog our ailing transport grid.

Then something changed. The lines between Uber and UberX blurred, and UberX drivers changed from well-dressed folks owner-operating, or working for car fleets, to guys with Jack Daniels hats, ponytails, and (this is literal) body odor.

Uber decreased in quality, both in fleet and drivers. Ubers used to be spit-polished tire-black shined towncars, and the drivers were excellent. Never an open door missed, a bottle of water offered, mints stocked, radio preference, and an AC at a comfortable temperature, which the driver would immediately offers to adjust.

It wasn't just the network that made Uber. It was the service. It literally outclassed the transportation of millionaires, with service options of the Four Seasons at the price of a Motel 6.

The service has now become so bad, that power users are like sailors following the rats off a sinking ship.

Then it's disclosed that one of the main showrunners has been spending all his time on some fucking branding project? And when it's finally released, the material he produced looks like it was created by a sentient bag of cocaine.

"We're particles that unite to form atoms, to something... something... interaction between meatspace and cyberspace.... unity, and particles and shit. Yo, you gonna hit that?"

Are you serious?

In summation: No moat, no network effect. It was nice of you to pave the way for self-driving car fleets, but unless you reorganize management from the bottom of the floor up, your balloon's about to deflate faster than Napster. Peace guys.

*Full disclaimer: I did turn down a second round interview at Uber due to their policies regarding the Americans with Disabilities Act. My consulting rate is $500/hr, and I'd consider fixing this mess with the ADA for half that.

I wish I had the opportunity to speak to your board for five minutes about the damage their ADA policies are causing.

Imagine a girl, unable to move unassisted, alone in the snow, as her driver throws her wheelchair to the curb screaming at how he doesn't accept people "like her."

[TheAceOfHearts]

This is really interesting to me, because I've noticed the same thing in the Bay Area.

I would conjecture that Uber constantly being under attack (i.e. having lots of negative articles about them) has played a significant role in this. So when people have to pick between Lyft and Uber, they go for the one that seems "less evil". Perhaps the reason Lyft doesn't come under fire as much is because they haven't grown enough to divert attention from Uber?

If we consider the long-term outcome, is this actually a problem for Uber? If you move between places where both Lyft and Uber are available, and places that only have Uber, it doesn't seem unreasonable that you'd just stick to using Uber. But anyway, once you have an account with one of the two services, what incentive do you have to create an account with the other one?

[ianstormtaylor]

Uber's problems aren't caused simply by being the frontrunner. They're cultural problems that come from straight the leaders of the company itself. They've repeatedly proven that they are misogynists[1][2][3], and that they don't have the same morals that most people value[4][5].

It's a disturbing trend that some of these unicorn startups are valuing growth at the expense of morals, and that VC's are complicit in pushing for growth above all else. It gives the industry a bad name, and I wish it wasn't so.

Luckily Zenefits seems to be dismantling itself because of its antics, so hopefully it will prove to be a lesson in how not to create a company culture for others in the future.

I can't speak for others, but that's why I always prefer Lyft.

[1]: https://pando.com/2014/10/22/the-horrific-trickle-down-of-as...

[2]: http://www.buzzfeed.com/charliewarzel/french-uber-bird-hunti...

[3]: https://pando.com/2014/02/27/we-call-that-boob-er-the-four-m...

[4]: http://valleywag.gawker.com/more-proof-uber-fights-dirty-aga...

[5]: http://www.buzzfeed.com/bensmith/uber-executive-suggests-dig...

[bragh]

I'm not American, so I'm probably missing a lot of cultural context with the last 2 quotes in [2]. With regards to 3), what's wrong with saying that you would much rather be at a fancy hotel than spending time arguing with city officials? Same for 4), I agree that it's not a good thing to say out memes in real life, but not something to the level of having to bring a PR person with you or have it quoted as proof of you being sexist in an article.

[seivan]

Those sources say more about your credibility than they do about Ubers. I think Uber actually relies on people like yourself, you have to understand that it's slowly harming your validity more than theirs.

To give you a comparison it's like those conspiracy theorists back in the days who claimed NSA was snooping on everyone and then later claimed the president is an Alien from planet Xenu.

[tarsinge]

This is ad hominem, anything substantial about the content of the sources?

[patio11]

Coke and Pepsi or, closer to the point, Coke and "sparkling water." Choice of how to reach your destination is less about product differentiation and more about personal differentiation. Some people don't want to be "the kind of person that uses an Uber."

[cgag]

Not sure why this is downvoted. I use Lyft and this feels like why to me.

[AlwaysBCoding]

I always take Lyft over Uber because they actually TELL YOU THE COLOR OF THE CAR on the app. Uber not showing you the color of the drivers car is one of the weirdest UI decisions I can ever remember.

[mindcrime]

I always take Lyft over Uber because they actually TELL YOU THE COLOR OF THE CAR on the app. Uber not showing you the color of the drivers car is one of the weirdest UI decisions I can ever remember.

Yeah, that's one thing Lyft definitely go right. For the life of me, I can't understand why Uber doesn't do that as well.

[skuhn]

It might stem from Uber's roots, since all of the Uber Black cars are by definition black. It is pretty annoying when using their billions of other offerings -- not everyone can spot a particular Honda Civic from two blocks away.

[SeoxyS]

I took a white town car on UberBLACK back in the day. It was pretty cool, it had a disco ball and pink lights inside.

[bboreham]

Well, that's weird: I got into an argument with my Uber driver at SFO last week because the app said his car was gray and I didn't notice it waiting there because to me it looked black.

Maybe it's supported for different grades of service?

[ajmurmann]

I pretty much stopped using Uber because every time I ask a driver who works for both whom they prefer they tell me that they prefer Lyft. I don't really see much of a difference between the two as a consumer so I use who the drivers prefer.

[nickonline]

But there's other examples of this, McDonalds in the USA is lowest of the fast food but around the world their stores are held to higher standards and output higher quality food.

Maybe Uber has given up on the USA as a whole, the USA after all is only 300 million people in a world of 8 billion+

Why bother competing at all when you can go overseas where there's little to no competition.

[cstejerean]

I think it's popular now in the SV circles (and this site) to hate on Uber. I'm not even sure why, but I'm fairly certain it's localized. I have traveled and used Uber all over the country and internationally as well. They seem to be doing just fine.

[techdragon]

For a while, before WW2, it looked like Germany was "doing fine" under Adolf Hitler too. Doing fine doesn't mean anything, you need to look deeper at the reasons people are hating Uber. There is growing evidence of systemic "social issues" that Uber is either amazingly still ignorant of, or more likely are being wilfully ignorant of in an attempt to maximise their profits. People are just reacting to this evidence based on their individual moral compasses.

[elliotec]

Uber == Nazi Germany

[mattnewton]

That's why you need to use ===

[jonesb6]

Despite the comment you replied to having no substance, I honestly wonder if people associate Uber with German and German with something negative.

[patmcguire]

I've seen the difference, it's much more pronounced with women. I talk with drivers, a lot drive for women, they notice significantly more women on Lyft.

I've heard a combination of complaints about Uber leadership being dudebros and Uber drivers sexually assaulting riders as the reason why. I don't know if Lyft actually provides a safer ride, but they don't say shitty things in public and don't have as many well known incidents.

[fosk]

Lyft has a lower volume and penetration, which means it's making way less rides than Uber worldwide. That could be a reason. Plus the media finding out that being against Uber brings more clicks.

[oneloop]

Can anyone make a rational argument why uber-type companies are winner takes all?

[usrusr]

Precedents. EBay, Amazon, Facebook and Google pretty much did take it all in their respective core markets. Uber and their investors seem to be taking a similar market capture as a given, freyr (your parent post, if I'm not mistaken) was questioning that. For reasons we seem to agree with.

What might still move uber from a fluent market into a winner takes all position some day would be a shift to their own fleet, either driverless or with employees. That would then be real investment and as such would be much harder to match by a newcomer than the day to day underselling they are currently doing to artificially to balloon themselves up.

[technotony]

The network effects come from the driver side of the market. If you have all the drivers, then you have the quickest pick-up/most availability which means best passenger experience and then most customers. This in turn means best utilization for drivers, so you get more drivers etc etc etc.

[prostoalex]

Network effect usually implies some kind of lock-in. Unless Uber is willing to go exclusive and qualify the drivers as employees, getting more drivers out on the road also means getting more Lyft and Gett drivers on the road, as most will just have multiple apps running.

[pfarnsworth]

It's hard to switch between apps. I've asked all my drivers the same question, and they all say that it's more trouble than it's worth because at least in the Bay Area, there work is constant as an Uber driver.

[kartickv]

Only until a point, the point of diminishing returns. If an Uber turns up in 5 minutes and an Ola in 6, that's not a significant difference. Similarly, if I have to pay ₹130 for Uber and ₹140 for Ola, that again doesn't matter.

And there are other factors. If a competing service let me choose what model of car turns up (say among nearby ones), I may pick that. After all, a big advantage of these over owning a car is that you can try different models.

I don't think the winner takes all, any more than restaurants are winner take all though in theory restaurants also benefit from higher utilisation, less food wastage, negotiating power over suppliers, etc, as the number of patrons increases. That hasn't led to there being only one restaurant in each neighborhood.

[Eridrus]

I think you're right that there's more of a critical mass requirement than real network effects.

However, I think uber pool/lyft line require a much higher critical mass of users to be effective than the basic lyft/uber services and there may not be enough users to fund more than one of those in some (many?) metro areas.

[subnaught]

Sure, but pretty much every Uber driver I've encountered also drives for Lyft and there doesn't appear to be any mechanism by which Uber can prevent that.

[natrius]

Uber is actively developing ride experiences like UberPool and UberHop that link multiple riders together in ways that can avoid a driver's car ever being empty. If the car isn't empty, they can't turn on Lyft.

[Spooky23]

You tend to coalesce into a few big brands when you sell a commodity with little differentiation.

Also, just as cabs did, über will erect regulatory barriers to entry for smaller players.

[kpennell]

Really makes me happy to hear that Uber is being punished for all the sketchy shit they've pulled over the last couple of years. I thought I was the only one who went for Lyft.

[flashman]

Uber's version of achieving loyalty/lock-in is literally to run the competition into the ground and make sure their customers have no other options. That's a long way from achieving it by offering the best service, and I don't think driver/passenger ratings bridge the gap: it's the difference between encouraging or rewarding good behaviour, and subtly threatening people for breaking the rules.

[mindcrime]

They don't seem to be doing a very good job of "running the competition into the ground lately". Everything I've been hearing is how Lyft is gaining ground on them. I know I've been doing more business with Lyft lately (see above) and from talking to a lot of drivers who do both (or used to do both) I definitely get the vibe that a lot of drivers are dropping Uber (at least in my area).

[tryitnow]

Weird. I've experienced a similar thing, except most people I know haven't given up on Uber, they just prefer Lyft. Not sure why.

And I don't think network effect is all that sustainable of a competitive advantage here. Switching costs are just downloading a new app and entering your credit card information.

Frankly, I think this market is still open in the very long term.

[rm_-rf_slash]

A billionaire serial entrepreneur once gave me two great gems of advice:

"My greatest regret is taking other people's money."

"Don't take money unless you are losing your window of opportunity and there's nothing else you can do about it."

[Johnny555]

Strictly speaking, unless it's a "network effect" situation like a social network, you probably don't need to grow fast

If you have an easy to copy idea (look at what happened to Sidecar after Uber swooped in), if you don't grow fast, someone else with more money is going to take your idea and run with it. If they grow faster than you, then you'll be squeezed out.

[EGreg]

In many global markets, there is always pressure to grow fast. You can only afford to grow slowly due to the inefficiencies of the market. In the end, the Googles and Baidus of the world now rule search, the Amazons and Alibabas rule shopping, etc. They grew super fast in the beginning, churning programmers even, to get to where they are.

So VCs are like corporations or central banks or other superpowers of financing -- they grant an unfair advantage to whoever they back, to defeat the other guys. Either by offering lower prices (eg free service) until the competitor runs out of money, or R&D to get to the next level of efficiency, patent portfolio, engineering talent, brand etc.

So financing is often necessary to compete in global markets. If you don't take it, you are betting that the market is either not global or not efficient.

[zzzzzxxxxx]

I think most readonable people get this. However, it is the SUV problem.

If you don't need an SUV you don't get one. However it is convenient to have at times and the downside is may be worth it. Also, they provide you with better protection...from all the other people who buy SUVs and this increase average tonnage on the road.

Networks are inherent in every business and the world is global.

I am not saying don't think about VC money, but there is no reason to suspect you can't get decent alignment. It is mapped pretty well to the success/need of the company. Smart helpful investors will be there (along with dumb money) for revenue positive companies.

[erikpukinskis]

> there is pressure to grow fast, but it comes from the investors and not from the market per-se

I don't even think the pressure comes from the investors per-se, it comes from the capital investments you make which necessitated the funding. Excess staff, buildings, tools, etc, all have ongoing costs and also depreciate in value. You are by definition building out excess capacity based on a growths model. If sales don't keep up, you become insolvent.

[audleman]

I agree that the internal costs are a factor, but I also agree with the original point. I'll share an anecdote of the CEO of my company.

We're a 2-year-old startup that hasn't reached profitability yet. We asked when that might happen, and he said we actually don't want to do that. We asked why, and he said that as soon as we start making a profit our investors will immediately start focusing on it. They will ask why we're not leveraging our profit to the maximum, what can we do to grow revenue? Whereas as long as we're losing money we can continue to experiment.

[leesalminen]

Oh man, I am glad I don't have any VC-style investors. I've a 2 year old startup and can actually talk to my investors about why we want to experiment.

[mindcrime]

Fair enough, there's an element of both I think. But there definitely is pressure from the investors, due to the time boxed nature of VC funds.

[tryitnow]

I agree, but I think you may be overly optimistic about the viability of bootstrapping indefinitely.

If you're sustainably harvesting profits from your niche then eventually that's going to attract other firms, some of whom are going to be big fish that can dump a lot of marketing and sales spend, take your customers and acquire the sustainable profits you've been harvesting.

There are exceptions for when people have really strong "moats", but defensible moats are a lot harder to come by than people realize.

[jacquesm]

And, unless your competitor takes VC money. If they do you'll be left in the dust other things being equal, the founders of that company will end up owning a smaller chunk of a much larger pile. It's an arms race and if that happens the only thing that will help you is if your competitor eventually does not make it or can't scale to the point where they can make the kind of money that made them make that bet in the first place.

[jorgecurio]

> luxury of simply enjoying organic growth and funding expansion by re-investing profits into the company.

That's a GROSS over generalization. It definitely is not rosy, not when your competitors are VC funded and releasing products for free. You can't compete with free and VCs are realizing that maybe there's no money in free products.

[mindcrime]

That's a GROSS over generalization. It definitely is not rosy, not when your competitors are VC funded and releasing products for free.

I know, hence the sentence after the bit you quote:

"Well, as long as you can do that in the face of competitive pressure."

Obviously every situation is unique, but my point is mainly just to say that not all startups have to worry about "grow fast at all costs". Sometimes - but not always - that pressure is just about the VC's wanting their returns within a certain window of time.

[wpietri]

It's a reasonable question, but consider three things:

One, part of the VC model is relatively frequent fundraising. You take some seed money, prove the model a bit, take an A round, prove it some more, etc. It's in nobody's interest to give all the money necessary to get to break-even at once; investors would rather make smaller bets, and founders want to sell as little equity as possible when uncertainty is high.

Two, if your goal is to never actually need another round of funding, then you'll be very conservative in how you spend your money. Bolder competitors will spend money with the expectation of getting more soon, allowing them to outpace you. So there's a strong incentive to spend as fast as possible, trusting that you'll get good enough results to earn the next round of investment.

Three, there are many interesting businesses that are only possible with huge investments. In the Internet world, Twitter and Facebook are good examples. Most ad-supported businesses really only work at scale; ditto network-effect businesses. For physical goods, Tesla's a good example: you have to sell a lot of cars to justify building a factory. Pharma, too; your second pill might cost $1 to produce, but that first pill can cost $2 billion.

I agree there's a lot of entitlement in the industry, but I think some of it's reasonable here, in that when you talk to a VC firm, they'll sing you a great song about how they are there to support you, that they'll back you all the way, etc, etc. People who haven't experience a downturn can be genuinely shocked at how fast supposedly bold, independent investors suddenly all stampede in the same direction.

[JumpCrisscross]

> if a business can't at least survive without huge influxes of investments then is it really a business that they should be investing in in the first place

Many entrepreneurs have been trained to pursue growth over short-term sustainability. In a market defined by network effects, this makes sense. It also works where one has a shot at winning a significant majority of a research-driven industry's profits (e.g. Apple or SpaceX), thereby starving one's competition of R&D oxygen.

Not all markets look like that. Furthermore, the cost of (and risk of losing) financing have not been properly worked into teams' growth-versus-profitability calculi. The time and resources it takes to adapt will kill some and slow others. After all is said and done, we'll have a healthier Valley culture.

[tariqali34]

Many of these businesses may make better sense as "non-profits", out to improve the welfare of the general community and funded purely by donations. I'm not sure whether donors would appreciate writing fat checks for programmers/managers/etc., but it's clear that a "hockey stick" growth could lead to a immediate path to monetization (if people know your name, you can capitalize on it when you're doing fundraising drives).

[cubano]

Are you kidding me?

Almost all VCs aren't interested in "non-profit" and "welfare of general community."

They want hockey-stick ROI and unicorns.

I know this may be the wrong forum to say this, but let's get real...VC are in it for the money, not to make a social impact, and the last thing most of them are interested in is playing welfare daddy to a bunch of tech nerds.

[woah]

I think you should re read what you commented on.

[tosseraccount]

"The point of funding should really be to enable faster growth"

The point of funding is to generate a return.

Hopefully more than you can get from CDs.

Good investments are often a very long term proposition.

[tryitnow]

No, funding should not necessarily be used to enable faster growth. It can also be used for development, for refining product/market fit, etc.

A lot of businesses would never be able to survive their early years without outside funding.

Now, do a lot of flimsy startups feel entitled to funding? Yes. That is a problem.

[InclinedPlane]

The point of funding isn't just growth, it's to keep a business afloat during the times when there's not much revenue but still lots of work to do to build the core business.